Rio Tinto Limited (ASX: RIO), National Australia Bank Ltd. (ASX: NAB) and Myer Holdings Ltd (ASX: MYR) trade on low multiples and appear quite the bargain. So are they great investments or value traps? Here's why I think now might not be the best time to add them to your portfolio.
Rio Tinto
As Australia's largest iron ore miner, investors who bet against the ominous forecasts of oversupply and under-demand for seaborne iron ore have witnessed substantial decreases in miners' share prices. Despite operating in other commodity markets such as Copper and Aluminium, Rio has been unable to avoid the selloff, down nearly 12% this year alone.
With shares trading on eight times 2014 forecast earnings per share, it appears too cheap to pass up. While trying to predict the direction of the steelmaking ingredient (which accounted for over 90% of Rio's FY13 earnings) is as good as a guess, the recent falls will significantly impact its top line. Until the miner releases its half-yearly report later in the year, buying into Rio is a risk I'm not willing to take.
National Australia Bank
Like Rio, NAB is yet to prove itself as a reliable investment prospect. After years of significant underperformance (relative to its peers) there's a reason why NAB trades on lower multiples than its counterparts, despite boasting a 6% dividend.
With its UK operations consolidating, management's priority has been to pay down its "run off" portfolio which includes poorly performing commercial loans. Whilst NAB could surprise investors and prove to be a turnaround story in the next 10 years, I believe Australia and New Zealand Banking Group (ASX: ANZ) is, currently, the best major bank.
Myer Holdings
Since making Myer my top stock pick for December, it has continued to perform poorly in a subdued retail environment. Although the local retail giant's website crashed during the Christmas period, Myer appears to be getting on with business and growing its online presence, so it's easy to see why some investors are taking a liking to it. In addition there has been some speculation it could be a takeover target.
The best BUY of all
However, I'm now convinced Myer is not the bargain I thought it was back in December and that waiting around for a turnaround in the retail-trading environment is something I'm not prepared to do. I'd rather buy growth stocks with proven track records and juicy fully franked dividends.
